In surveys conducted mid-year by The Tarrance Group and PhRMA, likely voters listed affordable healthcare as their primary healthcare concern.
The Association for the Advancement of Retired Persons (AARP) plans to push the new Congress to address measures to make drugs and healthcare coverage more affordable. Political pressure on that point is expected to be strong.
In this environment, the new Democrat-controlled Congress plans to allow Medicare to negotiate prices with drug companies. Hammill says he doesn’t know how that will affect biotech and pharma companies. But, because the secretary of the U.S. Department of Health and Human Services will have the authority to negotiate prices, he speculates that “it will give them one large customer versus many different customers and may make it easier.”
“No matter how we view the recent electoral developments, we cannot cast the results as anything other than materially deleterious to these companies,” Stock analyst Dennis Gartman, Daily Wealth.com, casts big pharma as the “big loser” in the new legislative environment.
From BIO’s vantage point, there are two major concerns if Medicare negotiates drug prices.
“This is the precursor to what will become price control,” Joseph says. Because Medicare prescriptions account for approximately one-half of the medication sales in the U.S., such control could lead to an artificial market. Additionally, Joseph says, “There are no incentives to push drug development.”
As the influence of Medicare-direct negotiations push prices down, willingness to invest in biotech stocks may wane, based upon their perceived risks, beginning a cascade that limits funding, drug development, and, ultimately, consumer choice.
The ultimate effect depends upon how the negotiations are handled. If Medicare prescriptions are negotiated as a bundle, Gartman may be on the mark. Originally, Medicare Part D offered a meaningful drug benefit in which the people chose the plans that best fit their needs. That strategy was not to allow direct negotiation but to allow market forces to work.
The AARP, which carefully monitors the legislative agenda, also sees plans to address perceived holes in the Medicare prescription drug benefit and allow reimportation of prescription drugs from Canada as high on the agenda.
Until the election results were in, reimportation was no longer an issue because of the success in Medicare Part D in bringing an affordable drug benefit to about 40 million people. Representative Pelosi’s office confirms that it’s not on the agenda for the first 100 hours. Nonetheless, Credit Suisse lists drug reimportation as a distinct possibility and one of six key threats to America’s pharmaceutical industry
In November there were rumblings that another presumed dead plan might resurface in the form of Senator Hilary Clinton’s (D-NY) failed universal healthcare plan. A health insurance trade group, America’s Health Insurance Plans, proposed a universal coverage plan to provide subsidies for working families to buy medical coverage, support state health reform efforts, and expand public health programs at a 10-year cost of some $300 billion. Other plans are likely to be introduced as the legislative agenda matures.
Nearly 20% of respondents to The Tarrance Group and PhRMA surveys listed universal health coverage or coverage for the uninsured as one of their top healthcare concerns.
About the same time, Senator Edward Kennedy (D-MA) convened a drug safety hearing, claiming that the FDA allowed politics to dominate science. FDA oversight hearings are planned for early 2007.
While there’s general agreement that the FDA is underfunded and understaffed, there are fears that moves to strengthen FDA’s safety record would slow the introduction of life-saving drugs, as well as concerns about how the costs of conducting any post-commercialization safety studies required by Senator Kennedy’s proposal would be shared.
This new Congress also is considered likely to move on follow-on biologics. With the effort to create a pathway for generic biologics, the trick is to distinguish between traditional generics and follow-ons, which have different science and are difficult to replicate.
Many biotech companies, like Roche (www.roche.com), are keeping their speculations to themselves for now. “It’s too soon to tell what will happen,” spokesman Darien Wilson says. At this point, “we’re leaving it to the trade associations to monitor.”